Until the sale of International Smart Sourcing, Inc.’s (herein referred to as the “Company,” “we,” “our” and “us”) subsidiaries, Electronic Hardware Corp., Smart Sourcing Inc., and Compact Disc Packaging Corp. (the “Subsidiaries”) on September 28, 2006, we were a holding company and the shares of the Subsidiaries held by us constituted substantially all of our assets. Accordingly, since the sale of the Subsidiaries, we have existed as a shell company with no subsidiaries and no business operations. Our plan of operation is to seek a target company with which to merge or to complete a business combination. In any transaction, management anticipates that we would be the surviving legal entity and our shareholders would retain a percentage ownership interest in the post-transaction company. The amount of the retained equity ownership by the shareholders will be negotiated by management and the target company, but would likely be less than a controlling interest.
We do not plan to restrict our search to any specific business, industry or geographic location, and we may participate in a business venture of virtually any kind or nature.
We may seek a business opportunity with entities which have recently commenced operations, or that desire to utilize the public marketplace in order to raise additional capital in order to expand into new products or markets, to develop a new product or service, or for other corporate purposes. We may acquire assets and establish wholly owned subsidiaries in various businesses or acquire existing businesses as subsidiaries.
On July 29, 2008, we entered into a letter of intent with Network 1 Financial Securities Inc., a Texas corporation (“NETW”), pursuant to which we would purchase one hundred percent (100%) of the issued and outstanding capital stock of NETW, resulting in NETW becoming our wholly owned subsidiary, in exchange for twenty-two million (22,000,000) shares of our Company’s common stock, $0.001 par value, which amount shall be subject to adjustment after the completion of (a) NETW’s audited financial statements for the years ended June 30, 2008 and 2007, and (b) a due diligence review by us. NETW is a registered broker-dealer. The acquisition is subject to due diligence and the execution of definitive agreements. If consummated, the transaction would constitute a reverse acquisition of us by NETW, as NETW would control the post merged company. The proposed reverse merger was approved by a majority of the Company’s outstanding shareholders in January 2009. On May 14, 2009, the Company filed a Definitive Information Statement with the SEC, which was mailed to the non-consenting stockholders on May 14, 2009. The Company expects the transaction to close on or about June 3, 2009.
We can give no assurance that any transaction discussed herein will occur, or that if such a transaction were to occur, it would enhance our future operations or financial results, or specifically that we would become and remain profitable as a result of such transaction.
For the quarter ended March 31, 2009 and March 31, 2008, our financial statements reflect that we had no operations since the sale of the subsidiaries on September 28, 2006. As a result of the sale of the subsidiaries, we are currently in the development stage and exist as a shell company.
OPERATING EXPENSES
General and Administrative Expenses
General and administrative expenses for the quarter ended March 31, 2009 were $128,781, as compared to $55,747 for the quarter ended March 31, 2008. The increase of $73,034 is a result of an increase in legal, accounting and consulting fees associated with the due diligence of the potential acquisition of NETW.
Interest Income
Interest income for the quarters ended March 31, 2009 and March 31, 2008 was $5,068 and $13,977, respectively. Interest income is earned from the certificates of deposit which we hold. In addition, we earned $3,232 in interest during the quarter ended March 31, 2008 from the loan to Charter Fabrics which we made on October 31, 2006 which was included in the March 31, 2008 amount above. This note receivable was repaid during the quarter ended March 31, 2008.
LIQUIDITY AND CAPITAL RESOURCES
Our total assets as of March 31, 2009 were $978,617, which is comprised primarily of $318,255 cash and cash equivalents, a $549,716 certificate of deposit with a maturity of six months and a $100,000 note receivable. We have approximately $900 in current liabilities which are primarily comprised of office expenses and taxes. We have approximately $458,000 in derivative liability for warrants. We anticipate that cash requirements during the next twelve months will relate to maintaining the corporate entity, complying with the periodic reporting requirements of the Securities and Exchange Commission (the “SEC”), evaluating and reviewing business ventures and acquisition opportunities and potentially negotiating and consummating any such transactions. We believe that we have sufficient cash on hand to meet these cash requirements over a period of twelve months.
Cash flow used in operating activities was $137,420 for the quarter ended March 31, 2009, which included a net income of $449,764.
There were no investing or financing activities for the quarter ended March 31, 2009.
CAUTIONARY FACTORS REGARDING FUTURE OPERATING RESULTS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations as of March 31, 2009 and for the quarter then ended, should be read in conjunction with the audited financial statements and notes thereto set forth in our annual report of Form 10-K for the year ended December 31, 2008, filed with the Securities and Exchange Commission on January 26, 2009.
Certain statements contained in this report, including, without limitation, statements containing the words, “likely”, “forecast”, “project”, “believe”, “anticipate”, “expect”, and other words of similar meaning, constitute “forward-looking statements”. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any results, performance, or achievements expressed or implied by such forward-looking statements. In addition to forward-looking statements contained in this quarterly report on Form 10-Q, the following forward-looking factors could cause our future results to differ materially from our forward-looking statements: competition, capital resources, credit resources and funding.
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The Company assumes no obligation to update any forward-looking statements as a result of new information or future events or developments other than in compliance with the federal securities laws.
OFF BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue, expenses, results of operations, liquidity, capital expenditures or capital resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4T. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The term “disclosure controls and procedures” (as defined in Exchange Act Rule 13a-15(e)) refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within time periods specified in the SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.
We have designed our disclosure controls and procedures to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within time periods specified in SEC’s rules and forms. We have also designed our disclosure controls and procedures to ensure that information required to be disclosed by us in the reports that we file or furnish under the Exchange Act is accumulated and communicated to our management to allow timely decisions regarding required disclosures.
Internal Controls over Financial Reporting
Management is responsible for the preparation of our financial statements and related information.
Management uses its best judgment to ensure that the financial statements present fairly, in all material aspects, our consolidated financial position and results in conformity with GAAP.
Under the supervision of management, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission published in 1992 and subsequent guidance prepared specifically for smaller public companies.
As a result of our evaluation, we concluded that our internal control over financial reporting was ineffective as of March 31, 2009 due to the identification of a material weakness. A material weakness is a control deficiency or combination of control deficiencies such that there is a reasonable possibility that a material misstatement of the registrant’s annual or interim financial statements will not be prevented or detected on a timely basis.
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Material Weakness
To address the weakness described below, we performed additional analysis and performed other procedures to ensure the financial statements were prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). Accordingly, management believes that the financial statements included in this quarterly report on Form 10-Q, fairly present, in all material aspects, our financial condition, results of operations and cash flows for the periods presented in accordance with GAAP.
The weakness, identified by management, related to the lack of necessary accounting resources to ensure consistently complete and accurate reporting of financial reporting. We do not employ a full time in-house controller or chief financial officer nor do we employ any in-house accounting personnel to do routine record keeping. Consequently, our financial reporting function is limited. Commencing on September 28, 2006, David Hale ceased serving as our Chief Financial Officer and we appointed Michael Rakusin as our part-time Chief Financial Officer. In order to further correct this deficiency upon the conclusion of an acquisition, management intends to seek additional qualified in house accounting personnel to ensure that we will have adequate resources to maintain complete reporting of financial information disclosures in a timely manner. We are not currently conducting operations and do not anticipate conducting operations prior to an acquisition.
We believe that for the reasons described above, after the conclusion of an acquisition, we will be able to improve our disclosure controls and procedures and remedy the material weaknesses identified above. Because of inherent limitations in all control systems, no evaluation can provide absolute assurance that all control issues and instances of fraud, if any, will be or have been detected. We believe that our plans related to controls and procedures will provide reasonable assurance that assets are safeguarded from loss or unauthorized use, that transactions are recorded in accordance with GAAP under management’s directions, and that financial records are reliable to prepare financial statements.
Changes in Internal Controls over Financial Reporting
There have not been any changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2009 that have materially affected or are reasonably likely to affect our internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not party to any material legal proceedings, nor to our knowledge, are there any proceedings threatened against us.
ITEM 1A. RISK FACTORS
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We have not sold any unregistered equity securities within the past three years.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
We have not submitted any matters to a vote of security holders during the period covered by this quarterly report.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
Exhibits:
| 31.1 | | Rule 13a – 14(a)/15d – 14(a) Certification, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002 |
| |
| 31.2 | | Rule 13a – 14(a)/15d – 14(a) Certification, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002 |
| |
| 32.1 | | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 |
| |
| 32.2 | | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 |
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SIGNATURES
Pursuant to the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
INTERNATIONAL SMART SOURCING, INC.
| May 14, 2009 | | /s/ David Hale |
| Date | | David Hale |
| | | Chairman, President and |
| | | Principal Executive Officer |
| |
| |
| May 14, 2009 | | /s/ Michael Rakusin |
| Date | | Michael Rakusin |
| | | Chief Financial Officer |
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